Integration plans to see practices aligned and shared bonus pool

Norton Rose and Australian firm Deacons will operate two separate profit centres when the pair merge in January next year.

The firms will integrate practice lines and systems including IT, finance and HR, however, partner remuneration will remain independent.

Instead, each firm will contribute profits from their respective pools into a shared account to be used for expenses and bonuses, with partners set to receive an annual bonus intended to encourage and reward integration.

The amount to be paid into the bonus pool is still under discussion, as the first payment is not expected until April 2010.

Norton Rose, which operates a lockstep model, reported a 17% drop in average profits per equity partner to £517,000 for 2008-09. In contrast, Deacons remunerates partners based on merit and saw average profits of around £450,000 last year.

Partners at Norton Rose and Deacons voted in favour of the first major merger between an UK and Australian firm earlier this week (22 June).

The agreement will see Deacons rebrand as part of the Norton Rose Group from 1 January, with the firms working in the meantime to align Deacons' practices around Norton Rose's main lines of business including energy, banking and financial institutions.

As part of the integration, Norton Rose is planning to overhaul its constitution to incorporate Deacons chief executive Don Boyd, who will take on the role of deputy chief executive once the merger goes live. It will also open seats on its board to various members of Deacons' partnership.

Norton Rose chief executive Peter Martyr, who will lead the merged firm, said: "Unifying the business is clearly the most important first step, at numerous levels such as strategy, clients, people, systems and constitution. We have identified numerous client opportunities and are satisfied that we share a similar culture."

The merger adds 146 partners from Deacons' offices in Sydney, Brisbane, Melbourne, Canberra and Perth, taking Norton Rose's presence in the Asia-Pacific region to 700 fee earners. It ends Deacons' relationship with its Asian network of offices, though teams of lawyers from Singapore and Jakarta are expected to join Norton Rose.

Though UK and Australian firms have discussed similar moves in the past, there has never been a deal of this scale before. Most recently, talks between Clifford Chance and Mallesons Stephen Jaques ended at the close of last year.

Norton Rose's news has received a mixed reaction from the market. One former Norton Rose partner said: "It is an interesting move. They have been looking for an Australian hook-up for some time. The Australian market has been affected by the recession as has the rest of the world. Maybe this is an opportunity to expand in a counter-cyclical way."

However the senior partner of a rival top 10 City firm countered: "I thought that most firms had thought Australia to be a saturated market. It is a slightly mystifying move considering they are not taking the Asian offices as well."

Market reaction

Senior partner, City firm: "If it hands Norton Rose strength in Asia, then clearly then it could be important. As for the timing of a merger, I would never encourage a merger based on weakness in the current time. If it is a merger based on strength, then it could well be good timing. It really depends if they have time to set aside for the management capital needed to make it work."

Consultant: "An interesting move. Making an Asian strategy work from Australia isn't easy, as many have found out, but that shouldn't stop someone trying."

Managing partner, Australian firm: "Deacons is a mid-tier Australian firm. I think in some respects it fits Norton Rose's profile as it focuses on corporate and projects. What I don't see is a synergy of clients, as Deacons doesn't have large cross-border clients. I can see how from Deacon's point of view they would gain exposure to a greater global network, but I am struggling to see what it will give Norton Rose."

Asian head, magic circle firm: "I don't know how large Norton Rose's current Asia practice is, but it will definitely add something on the Australian end. There is a lot of Australasian legal work at the moment, but it is pretty well-served by the Australian firms."

China head, City firm: "My off-the-cuff reaction is that this is irrelevant. I don't see the synergies for a firm like Norton Rose to merge with a mid-tier Australian firm. I don't see what that really creates. Deacons doesn't have a large Asia practice so I don't really see the synergies there. To have Australian coverage you need Sydney and Melbourne, anything on top of that is questionable. Whether the other offices will be an economic strain on Norton Rose depends on Deacons' market position in Australia and the financial arrangements of the merger. They must have addressed the disparity in profitability somehow."

For more on Norton Rose's merger visit Editor's comment: Kangaroo court.